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In finance, a tobacco bond is a type of US … In finance, a tobacco bond is a type of US bond issued by a state to obtain immediate cash backed up with a won lawsuit against a tobacco company. The typical tobacco bond lasts 30 years or less and pays interest every year. By 2014, tobacco bonds made up $94 billion of the $3.7 trillion municipal bond market. They share a revenue stream from the Tobacco Master Settlement Agreement, a 1998 national settlement in which Philip Morris, Lorillard and Reynolds American agreed to make annual payments to states in perpetuity to resolve liabilities for health-care costs related to smoking. Some states — Alaska, California, Iowa, Michigan, New Jersey, New York, Ohio, Rhode Island, West Virginia, as well as Washington, D.C., Puerto Rico and Guam — borrowed against the funds, which are based on cigarette shipments.s, which are based on cigarette shipments.
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